It is not yet known how the federal tax reforms will change life for most Americans. Some wage earners have seen a boost in their take-home pay. Many business owners report a bump in their bottom line.
But the tax legislation could be bad news for women who are getting divorced. Alimony payments will no longer be tax-deductible, removing the financial incentive to provide spousal support.
Some experts expect a rush of divorce filings before the end of this year. The alimony provisions take effect in January 2019.
Is federal tax reform a de facto alimony reform?
Under current law, the paying spouse can deduct alimony payments from his or her taxable income. Under the federal Tax Cuts and Jobs Act, this deduction is eliminated and tax brackets are condensed, removing any financial incentive to provide a generous level of support to an “ex.”
Furthermore, alimony income will not be taxable for the recipient. From the perspective of the payor, the ex-spouse’s tax windfall is Reason No. 2 to be more stingy with alimony.
Could go either way
While some men are awarded alimony, 98 percent of alimony recipients are women. By and large, the wives are more likely to suffer any adverse effects — or enjoy any benefits. Maybe the tax benefit for recipients will balance out any reduction in the amount of alimony. Some women may come out ahead.
Conversely, there may be fewer offers of alimony in negotiations or increased litigation of spousal support, adding to the acrimony of divorce and draining the resources of both parties.
A rush to avoid the tax ramification?
As lawyers and tax professionals crunch the numbers, there may be a flurry of divorce filings before the end of 2018. Spouses who have initiated divorce proceedings or signed a separation agreement by Dec. 31 will be grandfathered in under the current tax laws.